AI COMING HOME TO ROOST
A couple of our favorite lines are:
If the drop in stocks don’t scare, you had better be worried when they get the bonds.
Too much debt will eventually have the chickens coming home to roost.
Our poster child for many a month has been CoreWeave (CRWV)…amongst others but CoreWeave was one big gigantic sore thumb with massive losses, massive debt quickly approaching its market cap, dependence on others and insiders selling like the world is ending. The stock has been in trouble for a long while. This, in spite of the analyst community and their protestations. And now, 15% yield on their debt. That’s 15% and moving higher while the stock now craters. The CEO says everything is fine while the many at the company continue to sell billions.
This is just one name. We have seen plenty of times where one name does not take the rest down. Whether it is cause and effect or not, the AI trade worsens as the market has woke up to a crap load of debt, the continued announcements of more debt with a ton off the balance sheet and questions about how the heck can you fit a 10 pound salami in a 5 pound bag. (another favorite line). In other words, with trillions of debt, how will it be possible to make the first dime.
Bottom line, the area gets even more defensive than it already was. Many a name are down 30, 40, 50, 60% and now the strength is coming in. This has finally affected the NASDAQ/NASDAQ 100 and to a lesser extent, the S&P 500 as it is quite tech laden but not close to the NASDAQ/NASDAQ 100.
As always, when things go defensive, it gets defensive so the DOW and defensive areas will probably outperform in the near term. Defensive means staples, utilities and all that.
On one last note, liked that yields opened up strong yesterday and reversed the whole move and finished lower yesterday…on a not so great inflation number. Hopefully, we are seeing a ceiling but one day is one day. Jury is still out but usually on such a reversal, there will be follow up to the move and in this case, yields to the downside.